US refiner-marketers want policymakers to update federal reformulated gasoline (RFG) rules before the summer driving season starts.
Congress, in particular, should act quickly to protect consumers from potential price spikes because the US Environmental Protection Agency's powers are limited, trade groups argue.
Already some fuel suppliers fear that current and anticipated state bans on the clean fuel additive methyl tertiary butyl ether (MTBE) could strain fuel delivery systems, creating shortages and price spikes.
California marketers are especially concerned. They say that their state's new MTBE ban could wreak havoc on them and their customers (see related story, "EPA denies California refiners guidance on post-MTBE").
"Unfortunately, the transition from MTBE gasoline to ethanol gasoline has all the markings of another rocky transition, with even greater potential of volatile fuel prices and fuel shortages," said the California Independent Oil Marketers Association in a memo to members last November. "UWe have found no silver bullets that will significantly reduce the problems that may arise from this transition."
A failed plan
A US Senate proposal last year included a flexible MTBE phase-out plan. The legislation would have phased out the 2 wt % oxygen requirement in federal RFG and replaced it with a renewable fuels mandate designed to triple the ethanol market to 5 billion gal by 2012. Marketers could avoid ethanol in some markets by participating in a credit trading system.
A House proposal did not include an MTBE ban and called for a slower phase-in of the ethanol mandate. Liability protections also were hotly debated: The Senate shielded ethanol producers from some lawsuits, while the House version sought the same protection for MTBE producers.
The House also wanted assurances that the Highway Trust Fund would not be depleted from expanded ethanol use. (Fuel marketers pay less federal and, in some cases, state tax on ethanol-blended gasoline.)
This year, there is a new Congress, with both houses under Republican control, although in the Senate the margin is slim, creating strong gridlock prospects.
Timing and consensus
Whether this Congress finds it politically useful to refocus on such a narrow issue as RFG early in the session is not immediately known.
In the House, Rep. Billy Tauzin (R-La.) continues as chairman of the Energy and Commerce Committee. He said last month he wants a sweeping energy bill, including measures to simplify RFG compliance. Tauzin will get cooperation from at least one key colleague: House Speaker Dennis Hastert (R-Ill.), who represents a state that holds most of the US fuel ethanol production capacity.
Nevertheless, the timing and scope of an RFG "reform" bill, and most other energy-related legislation, remain unclear, lobbyists say.
One exception may be leasing proposals for the Arctic National Wildlife Refuge; Republican leaders are seriously considering including that in an upcoming budget resolution that would be shielded from Senate parliamentary rules that can delay legislation indefinitely.
Except ANWR leasing, domestic energy issues will be competing with oil-related geopolitical crises that are dominating the daily headlines. In addition, the presence of a new Senate majority leader, Bill Frist (R-Tenn.), adds a measure of uncertainty to the legislative agenda. Frist is viewed as more moderate than his predecessor Trent Lott (R-Miss.) on some social issues but is an untested dealmaker.
Lott's forced resignation left senators scrambling to fill a power vacuum. But on industry issues, the impact of the leadership change has so far been minimal. Lobbyists still expect Sen. James Inhofe (R-Okla.) to be chairman of the Environment and Public Works Committee, with Pete Domenici (R-NM) leading the Energy and Natural Resources panel.
Last Congress, both men supported the idea of comprehensive energy legislation that addressed both upstream and downstream issues. But lobbyists now predict there may not be the political will in this Congress to push through a complex package, with the refocusing of leadership and growing pressures to keep domestic spending in check, given growing budget deficits.
Associations are still urging Congress to consider updating clean fuels rules as part of a larger energy package. Still, if the political realities make one comprehensive bill difficult, industry officials still want RFG problems fixed via a legislative route (OGJ, Dec. 9, 2002, p. 27.)
Clean diesel
Along with clarifying existing RFG rules, EPA also is moving forward with plans to lower sulfur in gasoline and diesel.
EPA promulgated the gasoline sulfur rule with some protest from industry, but that opposition was relatively subdued compared with other clean fuel battles the agency has waged over the years; refiners are by and large preparing for the rule, which limits gasoline sulfur levels to 30 ppm in 2004.
By comparison, low-sulfur diesel has been a far more contentious battleground and could remain unsettled through part of 2003.
Industry vigorously contested the low-sulfur "highway" diesel fuel rule at EPA and later through the courts but lost. The rule requires 80% of highway diesel to meet new standards by mid-2006.
Now in the regulatory pipeline is a proposal to place stricter standards on nonroad diesel fuels (OGJ, Dec. 23, 2002, p. 28).
EPA plans to back an oil industry-sought, phased-in approach to desulfurizing nonroad diesel fuel and is expected to promote a White House trading program that is still being crafted at the Office of Management and Budget. The agency plans to unveil its nonroad diesel sulfur proposal by this spring.
Yet the sulfur issue clearly still troubles oil companies, according to recent comments made by industry-backed public policy groups to OMB.
Each year OMB solicits comments from industry and other stakeholders on existing and proposed regulations. The White House Dec. 19 said it has directed various government agencies, including EPA, to "prepare to discuss" suggested changes by Feb. 28.
A probusiness think tank, Mercatus Center of George Mason University, told the White House that EPA's sulfur rules are not cost-effective. For the impending gasoline rule, the group said EPA should leave decisions on content to individual states, with possible cooperation from regional air quality boards. They also called on EPA to reopen the comment period on the highway diesel rule.
OMB also received comments from the Center for Progressive Regulation and OMB Watch, groups supported by public interest and consumer organizations that say a strong federal enforcement role is needed to protect air quality. Those groups called on EPA to move forward with the original sulfur rules to reduce pollution.
OMB Watch said it is concerned that OMB may force agencies to reshuffle priorities based on industry comments, which were "disproportionately represented" in the comments, "given their vast resources and scope."
